Shares of Warren Buffett’s Berkshire Hathaway are now trading at a significant discount to the conglomerate’s intrinsic value, which may prompt the “Oracle of Omaha” to buy back more of his stock, according to UBS. “BRK’s shares are trading at more than a 20% discount to its intrinsic value based on the methodology outlined in BRK’s 2018 Annual Letter to Shareholders,” UBS’ Berkshire analyst Brian Meredith said in a note. “This appears to be a level where BRK has historically increased its share repurchase activity.” The conglomerate’s stock held up well in 2022 with a 4% gain as investors favored more stable pockets of the market. Still, shares are 14% off their all-time high of $544,389.25 hit in March 2022. BRK.A 1Y mountain Berkshire Hathaway In Buffett’s 2018 annual letter to shareholders, the legendary investor detailed how he believes the intrinsic value of his conglomerate should be calculated — summing the values of its four asset-laden “groves” and then subtracting an appropriate amount for taxes payable on the sale of marketable securities. Buffett said these four asset-heavy groves are 1) Berkshire’s collection of non-insurance businesses (BNSF, Berkshire Hathaway Energy and others), 2) equity portfolio, 3) business ownership in various companies (Kraft Heinz, Pilot Flying J and others) as well as 4) cash and other cash equivalents. The fifth grove of Berkshire is its insurance operations, which are not included in the calculation. “It is likely that – over time – Berkshire will be a significant repurchaser of its shares, transactions that will take place at prices above book value but below our estimate of intrinsic value,” Buffett said in the 2018 letter. Berkshire spent $5.25 billion in share repurchases last year through the third quarter, much lower than the previous year as Buffett used significant amount of cash to purchase other public stocks including Chevron , Occidental Petroleum and Taiwan Semiconductor in 2022. The conglomerate amassed a cash pile of nearly $109 billion at the end of September. Meanwhile, Berkshire suffered a $63.9 billion loss on its investments last year through September amid the broader market selloff. UBS estimated $7.7 billion in total buybacks in 2023 and said it sees potential upside if there are no meaningful acquisitions and thus a substantial amount of deployable capital. — CNBC’s Michael Bloom contributed to this story.
Berkshire stock is trading at 20% discount, a level where Buffett typically ramps up buyback, UBS says